The Single Biggest Legislative Development in the Rare Earths Market since 2010

Today it’s the 17th anniversary for InvestorIntel Corp., a company I started in 2001; the 41st anniversary of the death of Elvis; and now, it is the day we nod our head in ‘Respect’ for the Queen of Rock n’ Roll Aretha Franklin.

Amidst the news headlines of the loss of such a historical musical treasure, we are inundated here at InvestorIntel with an onslaught of emails asking us for coverage on the John S. McCain National Defense Authorization Act.

The ‘what’ some of you may be saying? Ah yes – we are to attempt to analyze the ‘real’ impact on the critical materials market from the recent signing of this law by Donald Trump. Our conclusion is that we agree with Jeff Green of D.C. based J.A. Green & Co., a full-service, bipartisan government relations firm that this “is the single biggest legislative development in the rare earth sector since the 2010 Chinese embargo created an awareness of our military’s reliance on foreign rare earth materials.”

I would argue this event is past due. But for all of us investors tired of making heads or tails of what cannabis deal is better than the next one, allow us to reintroduce you to a market that may adrenalize you because it involves military, it involves technology and most importantly, it affects you.

Some excerpts from Jeff Green when I asked him to break this down for us. He writes:

“The new law which sets an increased budget for defence expenditure prevents the purchase of rare earth magnets from China, which currently produces 85-90% per cent of the world’s rare earth magnets. Some 90% of rare earths consumed by the US military are produced by China.

{

Get our daily investorintel update

Email address is invalid

Thank you for joining InvestorIntel daily email updates!

}

The new law takes effect immediately, but practically speaking, it will take the DoD some time to implement the law through regulation and to start including the prohibition in new contracts.

To be clear, this law only applies to the use of Chinese NdFeB (Neodymium, Iron, Boron) and SmCo (Samarium, Cobalt) magnets, the latter being already subject to a previous law requiring domestic sourcing.

The new law, 10 U.S.C. 2533c, closely mirrors an existing domestic sourcing law, ‘the specialty metals clause’, at 10 U.S.C. 2533b. While the latter is a Buy American clause, the former states DOD will not allow rare earth magnets and tungsten in weapon systems that is produced by potential adversaries.

The law explicitly prohibits rare earth magnets and tungsten from being ‘melted or produced’ in China, Russia, North Korea and Iran. That means the production of the magnet can’t be in those countries, so importers and distributors can’t simply bring magnet block into another country and finish into a final part – the law is designed to reinvigorate rare earth magnet manufacturing outside of China.

The DOD may ask in the near future for new materials to be added to 10 U.S.C. 2533c, so there’s a good chance that this precedent continues as the Trump Administration seeks to eliminate the strategic vulnerability of foreign import reliance for critical materials – this bodes well for prospective producers outside China and Russia.”

Thank you Jeff as this bill required expert translation! And speaking of experts, we are trying to secure an interview with Nic Earner of Alkane Resources to comment on the news release they distributed last night. Am republishing it in case you missed it in our news section!

New U.S. Defence Law Bans Magnets from China, Creates New Demand for Alkane

New US Defence law prevents purchase of rare earth magnets from China

Signed into law by President Trump this week, increases defence spending

Alkane says this to increase interest in its rare earths project as independent supply source

United States President Donald Trump this week signed into law the John S. McCain National Defense Authorization Act which sets an increased budget for defence expenditure.

Section 871 of the act prevents purchase of rare earths magnets from prohibited countries, like China, Russia, North Korea and Iran.

Multi commodity explorer and miner, Alkane Resources (ASX: ALK)* sees this as a boost for its A$1.3 billion Dubbo project, which contains deposits of rare earths, hafnium, niobium and zirconium, since it represents an independent supply source from China.

A principal use for rare earths metals from the project is magnets, used across the automobile, renewable energy, aerospace, robotics and telecommunications industries globally.

Currently China produces 85-90 per cent of the world’s rare earth magnets, some 90% of rare earths magnets consumed by the US military are produced by China, world demand is outstripping supply and a shortfall of rare earths magnets is predicted by 2020.

This development follows a statement earlier this year by Prime Minster Turnbull at the time of his visit to the United States, which indicated an intended joint cooperation with the US on rare earths and high-performance metals.

According to Alkane Managing Director, Nic Earner, US needs could not be met without investment in new rare earths projects.

“Alkane’s Dubbo project is one of the few in the world which does not have a major Chinese shareholding or offtake committed to China,” Mr Earner said.

“This US development also opens the door for Australia in the downstream value adding manufacture of rare earth magnets,” Mr Earner said.
Alkane’s Dubbo project, which has a mine life of over 70 years, is construction ready with approvals in place and is awaiting financing.

Funding of the project to date has been assisted by Alkane’s nearby Tomingley Gold Mine, which generated A$60.1 million in cash flow for the year to June 2018, and currently Alkane has cash reserves of A$80 million.

In signing the act into law, President Trump described it as “the most significant investment in our military … in modern history”.

An accomplished entrepreneur Tracy Weslosky is the CEO for InvestorIntel Corp., a company that publishes InvestorIntel.com, a trusted source of online market information for investors ... <Read more about Tracy Weslosky>

Comments

Joe O

My Opinion Ucore has this ! Been gearing for it for years. Just go read the tea leaves.
Specialty Metals Complex in 2020 in alaska Specialty metals complex in Kentucky also (coal separation?) Due some DD Can I be wrong absolutely But that where my bet is Possibly alkane supplies feedstock to ucore for separation using MRT? Bet Tim says all things Lynas! ( I own them too)

Not sure why this would get any startups excited.
It doesn’t make a scrap of difference to overall global demand, just specifies where one part of the US economy can’t get them. Lynas + Japan can easily cover it. (Lynas then sells a bit less into China.)

Anyone see the irony of Trump allowing the sale to China of one of the three richest proven NdPr resources, complete with concentration facilities, only to go scrabbling after unquantified coal ash & oil sludge?

Recent report suggests the Dragon is certainly delighted:

“The Mountain Pass mine is stable in production and is expected to gradually reach production. The overseas business has entered the harvest period. The company has participated in the MPMO 9.99% equity of the US Mountain Pass Rare Earth Mine (the world’s second largest rare earth mine) development company through 17 years. Guomao (70% interest) obtained the mine underwriting rights. At present, the mine is in the stage of trial production, and the production is stable. It is expected to be steadily put into production after trial production. Due to the rich reserves of the mine, it is the same as the ore in Sichuan. Therefore, based on the mature technology of the company, there is still room for improvement in production capacity. The domestic rare earth mining index is limited and the southern rare earth mine is affected by environmental protection. Under the background, the mine is expected to form two major rare earth resource leaders at home and abroad with the domestic Baiyun Obo mine.”

What’s next, “US bans RE export to China”?

BTW, does the ban include the portion of Japan’s 21,000tpa NdFeB manufactured from Chinese NdPr?

We have years of covering the potential in Argentina George – when we start doing stories on where in the world the U.S. will now deal with what is inevitably going to secure their magnet materials: we will indeed include a story on Argentina. This said, I am with the commentators that are drawing attention to UCORE and MOUNTAIN PASS, as ultimately the U.S. will prioritize sources in their country. Opportunities such as SEARCH Minerals — and I will be publishing a story on AVALON this morning. We must all nod in respect to Don Bubar who has been a leader in rare earths and the associated education of this market, they still have a great deal invested in the Nechalacho Project in NA. Thanks for writing George.

Nice to see you not-reading again Tony, thank you. This was NOT a story on what rare earth companies or top critical material options are present, but a story on what this legislation actually means. As Jeff Green so eloquently pointed out, this is a challenging piece of legislation to truly understand and he did an excellent job. I utilize Alkane’s news release on what this means as they put out what I deemed to be an excellent translation and communicated this effectively. I appreciate that you are a LYNAS shareholder, but they have a website and a PR firm that you can contact if you would like to be a volunteer for trolling online for them….lol. Ah, 17 years in business and I bet you contributed to the reason Elon Musk wants to go private and had an “excruciating year”. Welcome back, I can honestly say I have not missed you.

Thanks Tracy for the public undressing. LOL.I did appreciate the quality reporting in the interpretation by Mr Jeff Green. As to the more substantive portion of the article I also hope you have been able to assist Alkane as they outlined their credentials.
PS: Elon sends his regards.

Relieved you reviewed the text Tony because if I had not commented and redirected, I would have received a cavalcade of crap text from shareholders of every single one of the nearly 700 wannabe exploration plays on the globe that popped into play during the 2010 balloon market. We now back down to the original 2-dozen globally in the public markets, we have only half a dozen in NA. As for ALKANE, I had nothing to do with their news release, just a humble recipient of the NR that thought: way to write this right! Plus they have management members like Ian Chalmers who I have watched try and educate the market on these fascinating technology metals! It’s going to be an interesting Fall.

What a welcome piece of news! After 8 years of Obama and 2 of Trump, maybe, just maybe, the realization has finally hit home. I don’t want to be a nay sayer here, but there’s still a long road to go between a government Act and a full blown, value adding rare earths industry in the USA. But it’s a first step and a major one at that. Congratulations to all involved.

Nice to hear from you Steve, We hope you are well. The message you provide is one that we continue to make but few are hearing. It’s great that Trump wants to use his own ‘grass fed’ magnetic materials, but we need to be producing them first….

Northern Minerals has just started production. Arafura & others in the wings.
Australia awake. US dozy – but they can buy me out.
Hope they do it quickly before the US dollar ceases to be the exclusive petro currency.
Won’t that be a dose of reality for them.

Thank you Don – we continue to watch Northern Minerals, and we have a story update on ARAFURA getting ready for publication later today. The Australians are positioned very well to become the answer everyone is seeking — which is another excellent source of critical materials. Thank you for visiting.

As a resident of Las Vegas I frequently have the opportunity to view the Mountain Pass mine and its operating activities, or should I say, until recently, lack of mining activity. As a major shareholder in Rare Element Resources I try to stay updated on the technology metals sector on your excellent website though I certainly don’t have the knowledge or expertise on this important subject matter that other members clearly have. But what is going on at MP’s operation at the Mountain Pass mining site? Activity at this site has very significantly increased, including what I prefer to call ‘surreptitious activities’ to include large scale cargo shipments at the facility. What is especially unusual is the cargo being transported to or from the mining operation is transported in large volume, in unmarked shipping containers and transported by leased or rented tractor trailers, usually Penske or other leasing companies. Hopefully this activity signals new life for a much needed mining operation and the technology metals sector as well.

Right on Hannibal – thank you for your feedback as it has been a very long time since I have heard anyone drop “RARE ELEMENT RESOURCES” here. I plan on reaching out to RAINBOW RARE EARTHS this week, and have asked Jim Sims to facilitate an interview with either himself of Mark Smith. Stay in touch.

Been following this sector since 2008 – see we finally have a pulse again. Loving the whole movement of interest to critical materials again….as you know: many rare earths projects have down played their uranium deposits. With uranium breaking through the resistance point at $27 p/lb – perhaps the one with the U-factor will start revealing themselves again….? Can’t predict this wild rodeo ride! All I know is that we need our critical materials to be competitive globally!

Thank you for asking and thank you, especially, for the gut-wrenching reminder regarding share price. Other than the most recent news release in October regarding General Atomics’ 4.752 million dollar investment along with its’ option to purchase additional shares, I really don’t have very much to contribute. With the share price so severely depressed this may present a buying opportunity, which is seriously under consideration. I did have the opportunity to talk to several local residents in the area of the proposed mine and they seemed to be united in their opposition to the mining operation. In the meantime I’ll maintain my covert surveillance of Mountain Pass and try to keep everyone updated on what I perceive as unusual activity. In the words of the immortal John Lennon “strange days indeed ” (at least at Mountain Pass).

Lynas may no longer be the only rare earth miner currently in operation outside of China. A not so new Phoenix appears to be, once again, rising from the ashes. According to reporter Eric Ng, in an article from the South China Morning Post which was updated on Aug. 30, 2018, the Mountain Pass mine is “currently under trial operation”. This would account for my observations of the dramatic increase in activity, to include nightly operations, at the mine site.
Let’s hope this is more than just a good premonition, for rare earth elements mining.

As I understand it Mt Pass is ex-China in name only. Moly never did get the separation working onsite and were reduced to shipping concentrate to Estonia as I recall. Now with Chinese owners of the mine I expect the concentrate to have a new destination. At a few $ per kg and zero US control beyond choosing to tax/block the exports.

Today, Lynas Corporation stock tanked, dramatically, on reports that the Malaysian government will launch a new investigation into hazardous wastes at the Lynas refinery in Kuantan Province, in addition to the company’s alleged noncompliance regarding payment of the required fifty million dollar security deposit mandated in their agreement with the Malaysian government. With the heavy debt burden, the threat of closure of their refinery and the current state of depressed rare earth element prices, Amanda Lacaze clearly has a war waging on many fronts. Two thousand years ago the Roman historian Livy wrote (in reference to the catastrophic Roman defeat at Cannae), “Certainly there is no other nation that would not have succumbed beneath such a weight of calamity.” But Rome survived and thrived. And so will Lynas.

Some people search for bad news about others to escalate the opportunity for themselves. Lynas are totally aware of their circuits, especially those that others are watching. Listen, if you can, to the rebuttal.